FIRST TIME BUYER MORTGAGE

FIRST TIME BUYER MORTGAGE GUIDE

Buying your first house is one of life’s most exciting yet daunting experiences. That’s why one of our experienced mortgage advisors will work with you every step of the way to provide clear and tailored advice – minimising the stress on your road to home ownership. In this section:

• What type of mortgage do I choose?
• Is there anything I can do from a self-employed perspective to help my application succeed?
• How will I afford my mortgage repayments if interest rates increase over the next few years?
• Are there any options for me if I can’t raise a minimum deposit?
• When do I need to get a solicitor involved in the buying process?
• What if I work under an umbrella company?
• Will being a contractor work against me?
• What are the benefits to using a specialist?
• How to strengthen your mortgage application as a contractor
• The importance of good credit history
• How do you apply for a mortgage?

WHAT TYPE OF MORTGAGE DO I CHOOSE?

With there being so many different mortgage products available it often feels like you don’t know where to start, and that it can be confusing for first time buyers. Most first time buyers have a limited deposit, often via savings. Therefore you require a high loan-to-value (LTV) mortgages i.e. you may only have a 10% deposit and so need to borrow 90% of the value of your new home. There are a lot of high LTV mortgages on the market, but the type of mortgage you opt for will depend on your own particular circumstances and requirements. Let’s look at two of the most common mortgage types; fixed rate and tracker mortgages. Fixed rate mortgages require you to pay a fixed rate of interest for a predetermined period of time i.e. a 4% interest rate for the first two years of the mortgage period. With a fixed rate mortgage you know exactly how much your repayments will be for the foreseeable future, providing peace of mind and to budget accurately. Tracker mortgages vary with the Bank of England Bank rate. This means that repayments can go up or down. If central interest rates fall then you save money each month. If central interest rates rise then you will be required to pay more. Tracker mortgages can also be capped which means that the interest rate payable can’t increase above a set maximum rate. In addition to these two main categories of mortgage there are several other options, such as offset mortgages and bank account mortgages. For each enquiry we receive we will match you to the most appropriate type of mortgage for you and your circumstances.

IS THERE ANYTHING I CAN DO FROM A SELF-EMPLOYED PERSPECTIVE TO HELP MY APPLICATION SUCCEED?

Before starting the process of purchasing a home, you will need to understand if you can feasibly afford the costs involved and work out your monthly expenses. Familiarise yourself with your credit report – ClearScore and Credit Karma are excellent free resources that compile credit date from multiple different sources and put a plan in place to make improvements to your score if necessary. This is by far the most effective way to increase your chances of success when applying for a mortgage. Also make sure that you have the following documents to hand to support your application:

• A signed copy of your current contract
• 3 months personal bank statements
• 3 months business bank statements or umbrella payslips
• 2 utility bills from the last 3 months
• 2 forms of photo ID e.g. a passport and driver’s licence
• Proof of your deposit.

How will I afford my mortgage repayments if interest rates increase over the next few years?

We want to ensure that our clients can afford their mortgage whatever the future holds so we stress test your mortgage affordability against higher than current interest rates to ensure that you could still make your repayments should interest rates rocket. If you’re concerned about the impact that increasing rates may have on your expenses then you can opt for one of the many competitive fixed rate mortgages that are available at present. Speak to your Roots Mortgages adviser to explore the options. It’s also a good idea to have a realistic deposit and monthly repayments figure in your head before you start the application process; use our repayment calculator to find out how much your monthly costs are likely to be.

Are there any options for me if I can’t raise a minimum deposit?

The Government’s Help to Buy scheme is a great option for first time buyers struggling to save a large deposit. This scheme requires just a 5% deposit, making it extremely appealing to first time buyers. Speak to a Roots Mortgages specialist to explore this as an option further.

When do I need to get a solicitor involved in the buying process?

Having your agreement in principal and solicitors in place before you view a property is a great way to proactively start the process of buying a house. Your Roots Mortgages adviser will be able to point you in the direction of a reputable solicitor with a proven track record of delivering for our clients. Your solicitor will liaise with the lender and the vendor’s solicitor to conduct the necessary searches and surveys and ensure that the legal aspects of the sale are completed. When it’s time to exchange contracts, your solicitor will hold your deposit money until your agreed completion date so choosing a firm you are happy with is essential.

WHAT IF WORK UNDER AN UMBRELLA COMPANY?

It’s not just limited company contractors we specialise in, we can assist those working under the umbrella payment structure. Irrespective of your unique circumstances we’ll find a mortgage that suits your individual circumstances.

WILL BEING A CONTRACTOR WORK AGAINST ME?

It’s widely accepted that most lenders traditionally prefer to assist regular employees. This is due to employees earning via PAYE from their employer and because that income can be easily verified, whilst contractors who may have a variable income arguably makes it trickier to calculate their income and affordability for a mortgage. That said, as contracting become far more common year on year, lenders are keen to understand contractors and underwrite mortgages that meet their requirements, especially so as many contractors are high-earning professionals. This in turn means that specialist contractor mortgages employ affordability assessment criteria that is designed to reflect how contractors work and earn their income. So, providing you pass the lender’s affordability and credit checks, you should find that you have access to similar or indeed the same interest rates and mortgage products as all other first-time buyers.

WHAT ARE THE BENEFITS TO USING A SPECIALIST?

Many first time buyers have no idea where to start in finding and then applying for a mortgage. There is no schooling or set guidance, so often relies on word of mouth recommendations. For some, this makes it an overwhelming or daunting process to go through, especially so when there are a vast number of mortgage products on the market from a wide variety of different lenders. If you are a contractor and first-time-buyer then there are further things to consider when applying for a mortgage. Not all mortgage lenders have the same risk appetite, meaning that some like contractors, some don’t, and many lenders will have significantly different criteria that they use to assess a contractor or self-employed mortgage application. Therefore using a specialist like ourselves ensures you have access to those who lenders who do like contractors, and with the right planning and guidance your application for a first-time contractor mortgage needn’t be any more difficult than any other homebuyers mortgage application.

HOW TO STRENGTHEN YOUR MORTGAGE APPLICATION AS A CONTRACTOR

There are many good tips to strengthen your mortgage offer, especially so as a first time buyer. If you can, offer a larger deposit. This means borrowing a smaller amount and is one way to improve your chances of success. The less risk a lender faces when lending to you the more favourably they will view your application. Lenders will always look for signs of long-term security, so if you are able to produce an ongoing agreement with an end client i.e. confirmation that your contract is likely to be extended, or past agreements that were renewed, this may make your application more appealing to lenders.  Contracting is a lifestyle, so whilst being able to take breaks between contracts is be one of the perks of contracting, minimising time off in the lead-up to buying a home is seen as advantageous, as some lenders may be wary if they see you out of work for more than eight weeks in a 12 month period. Finally, it is always worthwhile understanding your credit score and how good/bad it currently is and whether you need to work on improving it before submitting a mortgage application. For some lenders this is key factor in their decision if to lend to you or not, as they will be looking for evidence of good financial management when your income is not guaranteed.  In addition you will also need to evidence of your expenses and operating costs – the more information you provide, the better the lender can understand your financial situation and feel confident lending to you. 

THE IMPORTANCE OF GOOD CREDIT HISTORY

Assessing your creditworthiness forms a very large part of the mortgage application. It often consists of two elements; 1) Credit scoring; this is where a score is applied to your personal circumstance across a range of factors i.e. age, job type, length of time at a current address and 2) A credit check; which is where a check is performed with external credit reference agencies. The main credit reference agencies in the UK are Equifax, CreditKarma and Experian, and all of these agencies record details of all credit arrangements you have had, including details of missed payments, arrears and more serious credit issues such as County Court Judgements (CCJs) and bankruptcy. So, before completing a mortgage application you should look to obtain a copy of your credit report so that you can check in advance for any issues or adverse records that may affect your application.

HOW DO YOU APPLY FOR A MORTGAGE?

The easiest way is to book a free no obligation appointment with one of our specialist mortgage and protection specialists. They will walk you through the whole process, understand your circumstances and what is affordable and available to you in terms of mortgages, as well as being able to answer any queries you have. Ultimately it is the advisor who will submit the application on your behalf, after you have agreed to proceed.